Gold prices bounced back on Monday as investors purchased the yellow metal to take advantage of the steep drop on Friday. Though they remained cautious as inflation continued to rise. The bullion’s gains were restrained by the stronger dollar. The greenback stayed close to its highest level in more than two weeks.
Spot gold is currently trading at $1,781.40 per ounce as of 0801 GMT.
The new data released by the U.S. Bureau of Labor Statistics showed that the personal consumption expenditures index rose by 4.4% in September or an annual rate of 3.6%. It is the highest level in 30 years. The Federal Reserve will meet this week to update its views on the economy and monetary policy.
OANDA senior market analyst Jeffrey Halley cautioned investors not to be caught net long if gold rises above $1,800 per ounce. About the Fed meeting, he believed that the central bank might raise the monthly taper targets. But it will not give any signal that interest rate increases are coming soon. None of these will be good for the bullion since these would push the dollar and Treasury yields higher.
DailyFX senior strategist Christopher Vecchio added that the Bank of England and the Reserve Bank of Australia might also take a more hawkish turn. It is likely to put more pressure on gold prices. He also mentioned that the IG Client Sentiment Index indicates that bullion prices have a bearish trading bias.
On the technical front, Reuters technical analyst Wang Tao predicted spot gold to retest a support level at $1,776 an ounce. If the yellow metal falls below that level, it could go down further to $1,764.
DailyFX head strategist Ilya Spivak added that gold prices formed a bearish Dark Cloud Cover candlestick pattern at downtrend resistance. He predicted that if the bullion closes below the support level at $1,750.78, it could slide down to the next support at $1,750.78 and then to $1,676.91. But if the metal closes above the $1,834.14 level, it would neutralize selling pressure and invalidate trendline resistance.
In physical trading, there was a slight increase in gold demand in India as retailers are preparing for big festivals in November. Next week, Indians will celebrate the Dhanteras and Diwali festivals in which purchasing gold is considered auspicious. Retail buying picked up and sentiments were upbeat. The World Gold Council predicted a significant surge in gold demand in India in the fourth quarter.
In China, the talk about economic slowdown dampened gold demand. A local trading expert explained that gold buying depends on income growth. But traders expected gold demand to improve early next year as consumers prepared for the Chinese New Year.